bfin 141 - ch. 6

Which ratio measures the portion of net sales that is gross profit?

• Gross margin ratio.

• Net sales ratio.

• Gross profit ratio.

• Gross margin ratio and gross profit ratio.

Goods in transit are included in inventory

• When the ownership has passed to the purchaser.

• When the purchases is responsible for paying freight charges.

• When the supplier pays the freight charges.

• When the purchaser is responsible for paying freight charges and when ownership has passed to the purchaser.

Use of the FIFO cost flow assumption means that

• Ending inventory items are the ones most recently purchased.

• Goods are removed from inventory at their average cost.

• The periodic costing system is used.

• The beginning inventory contains the oldest costs.

Days' sales in inventory is calculated by

• Dividing average merchandise inventory by cost of goods sold.

• Dividing cost of goods sold by average merchandise inventory.

• Dividing ending inventory by cost of goods sold times 365.

• Dividing cost of goods sold by ending inventory times 365.

Physical counts of inventory

• Are not necessary under the perpetual system.

• Are necessary to adjust for shrinkage.

• Should be taken at least once a month.

• Are necessary to adjust for shrinkage and should be taken at least once a month.

Costs included in the value of inventory are

• Purchase price less discounts

• Transportation-in

• Storage

• All of the above

The pricing of an inventory where the purchase invoice of each item in the ending inventory is identified and used to determine the cost assigned to the inventory is

• First-in, first-out method.

• Specific identification method.

• Weighted-average inventory method.

• Average costing method.

The consistency principle

• Requires a company to use the same accounting methods period after period.

• Requires a company to use one cost flow assumption exclusively.

• Allows a company to change its cost flow assumption period after period in order to maximize net income.

• Is also called the matching principle.

The full disclosure principle

• Requires that when a change in inventory cost flow assumption is made, the notes to the statements report the type of change.

• Requires that any change in net income due to changes in the inventory cost assumption be disclosed.

• Does not require a company to use one cost flow assumption exclusively.

• All of the above.

The principle of faithful representation

• Requires that information be complete, neutral and free from error, so assets and income are not overstated, and liabilities and expenses are not understated.

• Requires that a company use the same accounting methods period after period.

• Requires that revenues and costs be reported in the period in which they are earned or incurred.

• Requires that all items of a material nature be included in financial statements.